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Job prospects

This offers a slightly different take on an issue I’ve been worrying about for a long time: recoveries don’t seem to be what they used to be.

Mark points out that in pre-90s recessions, rising capacity utilization — which coincides with the official end of the recession — was also marked by falling unemployment, right away. Since then, however, unemployment has seemed to follow the turnaround in capacity utilization only with a long lag.

Why the change? I argued in the piece above that it reflects, at least in part, a change in the nature of recessions. Here’s a somewhat better chart than the one I originally used:

What this shows (you have to squint a bit) is that earlier recessions were preceded by sharp rises in interest rates, as the Fed tried to choke off inflation. This produced a housing slump, with a lot of pent-up demand; when the Fed decided that we had suffered enough, it relented, and both housing and the economy sprang back.

But later recessions took place in a low-inflation environment, in which booms died natural deaths from overextended credit and overbuilding. Getting the economy growing fast enough to bring unemployment down after these recessions was therefore much harder, since the usual channel of monetary policy — housing — lacked any pent-up demand.

So what about our current situation? It’s just like the two previous “postmodern” recessions, only more so, since the bubble before the slump was in housing itself. This suggests a long period of jobless growth; so does the international evidence on the aftermath of financial crises.

That said, there’s been a lot of optimism out there lately, reflected in the steepening yield curve. I’d like to think that’s right. But Ed McKelvey at Goldman (no link) has a new report titled “Recovery more Ho-Hum than Ho-ho-ho”, in which he acknowledges that growth will be good this quarter, but presents evidence that it’s all a temporary inventory bounce.

And then there’s the disturbing prospect of our federal government running out of ammunition–in terms of fiscal and monetary stimulus.

I know, I know we haven’t hit the limit and we don’t exactly know where the “limit” is. But at some point–if economic recovery and job growth do not ignite organically–the markets may lose confidence, especially in the dollar and in the Treasury & GSE credit markets.

Reagan came, and said government was bad, a cannon ball to drag at the end of a chain. So he, and his little followers, tried their best to decapitate the government.

But, in a democracy, the government is the head, the leader, the inspiration, and not just of society, but of the economy. So the headless American economy has been wobbling along, searching for meaning, and thought it found it by in a squabble with its ex-allies in the Middle East (Hussein and bin Laden).

Thus, hare brained little plans here and there have made the entire American economy a bit like NASA and its ridiculous Ares 1 rocket or GM and its lack of future: no adult supervision. Serious people have seen their living conditions deteriorate, as they always do in a brainless economy.

Meanwhile, in Europe, in much tougher circumstances, many government have been trying hard to steer for the best (example: Denmark, France, Germany). We will see if the head is stronger, and smarter, than the pure greed of the plutocrats, obsessed by their short term personal profits. Meanwhile let them enjoy their zero interest rates… See how far zero goes…

And it creates a huge haves vs. have nots situation by segmenting the population into the 80% employed (fairly securely by now after job cuts) and the 20% either underemployed or unemployed. The majority will ‘vote their wallets’ once they register that they are ‘safe’, meaning that they won’t want more stimulous and will reestablish their spending patterns. Meanwhile, as assets depreciate companies will not reinvest in capacity, which will bring down underutilization. This could keep the have nots permanently have nots…

Oh, and just think of the impact of serious further weakening of the dollar. One impact will be to make it much more difficult to keep population growing via immigration. (Maybe we can keep attracting nannies and gardeners from Central America, but you can forget the doctors and engineers from Asia.)

And without population growth our little game is in real trouble. It becomes more difficult to soak up non-export capacity and we never recover residential and commercial building rates.

And without the influx of skilled labor it’s going to be tough. We’re going to need some more doctors for all these newly covered people…

Paul, at some point in your life, you need to decide to let facts influence your ideology.
The government is threatening, and you are cheerleading them to do so, to add to the costs of employing people. Not minor costs, but massive costs. As one example, if the Senate health insurance bill passes, we will be forced to provide our employees not only first dollar, no deductible health insurance for them, but also for their 26 year old children. As another, if you have your way, we will be faced with all of the costs of a federal bureaucracy associated with cap-and-trade legislation, all because of the inability of the political class to identify junk science. Still another, as the Bush tax cuts disappear, money that we use to hire people will instead go into the political system to pay Nancy Pelosi’s political cronies. OF COURSE unemployment is going up.Following your advice, Obama, Pelosi and Reid are destroying jobs.

If anyone thinks factories are going to get us out of this recession via employment then they haven’t walked factory floors lately. For the most part they are ‘lights out’ or nearly so already. One could ramp up the output of many of America’s factories [and even to an increasing degree Asia’s] and continue to lay off the whole time – it is the miracle of ‘smart automation’.

Just for the record – I work in mfg support & walk factories coast to coast & even in Mexico & Canada. I see it everyday.

What is even more disconcerting is the power of automation is now a staple of the office as well – due to ‘task automation’ software like project mgmt, CAD, supply chain, ERP & accounting packages.

The operational leverage these advances provide is every bit as powerful as factory automation was a generation or two earlier [remember ‘rust belt’?]…

If we aren’t going to ‘create’ jobs in fields like pet daycare, massage therapy, retail & real estate brokerage [and other ‘nonessential services’] then we aren’t going to create jobs – period. They are NOT going to be coming from mfg or mfg related office support – we just don’t need the bodies.

Plan B should be to create ammunition by refinancing working America. Pump up the minimum wage. Make union organization easier. Reduce the payroll tax on employee and employer. People with money spend it on food, housing, and education.
We can easily pay for this largess by collecting the payroll tax on all earned income including option profits and stock awards. By a VAT tax like all the Euro nations have. Those that can not afford a VAT tax can be protected by larger standard tax deductions. We could with some effort start making the gangsters that are defrauding Medicare and Medicade go to jail and collect the fifty to one hundred billion they are stealing. We probably have two hundred billion dollars of taxes that are avoided and evaded. We protect our rich theives. Congress is always reluctant to give teeth to tax law enforcement. Sort of a birds of a feather deal.
However, with a Federalist Supreme Court dedicated to protecting Capital from the rabble and an absolutly corrupt Congress, we are doomed to struggle on and it is likely that we will never regain overall prosperity and our children will live in a society even more unbalanced that ours.
We will end up with a Law and Order single party faux democracy, just another “banana republic.”

Dr. Krugman–we”ve been hearing about a Keynesian revival for some time. Wouldn’t this be a good time to update to J. K. Galbraith? I read “The Affluent Society” more than 50 years ago, (and will reread it), but what still sticks in my mind seems highly applicable to today’s permanent job losses.

Noting that there’s no reason why the number of people who need income should match the number required to run the economy, he suggested that jobs increasingly serve as a means to distribute income rather than secure production. Automation would be the driving force (here he was wrong, it would be offshoring of jobs). His proposal for guaranteed annual income was a non-starter, given our centuries old puritan attitude that the devil makes work for idle hands, but some have hinted at conservative support, given that we could immediately outlaw panhandling.

I took econ 101 from Paul Sweezy at Caltech in the mid-fifties, and am pleased to report that he not only used the Samuelson textbook, but supplemented it with Galbraith’s “American Capitalism”.

We as a nation have become more efficient. This means that it takes less and less people to do the same job. That was a great thing when there were new industries providing new jobs that could now be fully staffed at a lower price. It was a classic economic win-win situation. But if you haven’t noticed, since the tech dot com boom, we haven’t had new industries emerge that can employ the unemployed masses. Most of the new growth industries such as nanotechnology and biotechnology haven’t taken off at the rate of the old boom technologies. They also do not require unskilled workers at quite the same level as the railroad boom, automobile boom, radio/television boom or the old tech boom. We need new industries that provide new goods that we need but that also require large numbers of people. New energy maybe a partial solution but I don’t see it being a new industry because a lot of the old industries have such a large stake in energy already. Power companies, Oil companies etc that can step in and quickly reduce the amount of new jobs created by reusing their old workers. Other than that I am afraid that the next boom is going to be super-automation with robots, ai systems and others taking over even more low skill jobs. Drive through, cashiers, more manufacturing workers and a large number of communication industry workers will be axed next. Sorry. I just need some Christmas cheer I guess.

Money, and the amount of labor it represents in our (wildly manipulated) “Market” economy, is a necessary convenience to allow people to specialize, and trade their specializations for sufficient food, drink, housing and transportation in order to live.

What has happened, over time, is that some individuals have banded together, united by their common individual value systems which see the acquisition of money, far above that required to simply live, as the ultimate activity upon which to spend their lives here on the earth. This activity, for these individuals, is more important than love, their family, friendships, their spouse, their children, and anything else on the planet that is external to them.

These people are wholly and completely self-involved for 99% of the time they draw breath on the planet. Oh sure, as they approach death’s door, some have sudden “epiphanies” about the value of their lives, and make some last minute gestures towards atonement. They throw a few crumbs of their wealth to the world before the shuffle off to the grave. Some of them. Most don’t.

But the damage they do, and that their addiction to wealth has done, remains irreparable.

I see no way that our system of money, controlled by these people, can ever be equitably expected to operate without the massive skewing created by these people. People don’t change. The system is entrenched, worldwide, and as has been demonstrated during this crisis, the continuation of this system is the utter primary motivation of every shade of government on the planet. Democracies, Fascist and Totalitarianistic state, Communisms…all banded together to SAVE THE INVESTMENT BANKS. At the cost of each of their citizens, and the planet.

The crisis in jobs is getting bigger by the day due to internet revolution & transfer of efficiency evolution to emerging economies which have the workforce and the resources at their outset right now.
US is expecting others will cook and serve whatever they make ; accepting paper notes- but is more likely to be left out of the next game.
Consuming things is one thing that needs no technology.
BRICS can and should consume whatever they make in their industries and raise their own debt levels in the process.
But the only thing that stands their way is the overt /covert operations of Military complex .
So the questions boils down to one thing – Are chinese going to serve NINJAs [No income no job americans] to protect themselves from so called terrorists

Getting out of “this” is still a long shot. A great deal of national discomfort and soul searching lie in front of us. The new US economic dynamic is based on the existent economy. Almost 20% of the 2007 workforce is non-contributing. According to government fiscal custom they will cease to be counted as deficits when their benefits run out. They will not necessarily become assets, but that was the beauty of Enron. Off balance sheet entities to hold toxins. Sound like a familiar philosophy? When the unemployed are moved off balance sheet, the numbers will look wonderful. When aggregate demand is reduced by this wonderful accounting trick we can expect the second dip. Hey pardner, gimme a leg down.

So this recession is something of a relatively new thing. It’s not following a period of inflation, which is a recent pattern. Are there macro models that might speak to the origin and effects of this?

If housing is out, is there another “channel of monetary demand” that could usefully stimulate economic growth, preferably without starting a new bubble? While I’m all for a WPA style approach myself (and our aging infrastructure could use a boost), I realize there is little political traction for that these days (especially post stimulus). Is there another private sector that could spin up some sizable labor growth through tax credits (perhaps with a tapering payback rather than an abrupt fall off to ease the exit effect)? After all you pointed out that taxes and subsidies make the health care plan simulate a single-payer scheme. Can we do something akin to that for the economy that “simulates” direct stimulus?

The reason employment isn’t picking up as fast these days I think is because manufacturing is either all robots or all overseas. Getting interests rates down used to help not just housing employment but factory employment as well. Not any more.

Much of the manufacturing now requires more education as it is more automated but our education system is caught in the early 1900’s.

Every Toyota factory worker can participate in statistical analysis of his group’s defect rates. Almost no one in the US could. We’re standing still and becoming a third world country as the rest of the world surpasses us not with just cheap labor but educated labor.

nicely book-ending the previously reported ‘worst decade for stocks’ being the ’00s since the 1792 Buttonwood Agreement founding of the NYSE.

The De-regulation Recession has fully validated all your warnings about the shredding of the social safety net for the middle class and the ruinous tax policies which ever more quickly suck capital to the top of the economic pyramid, creating bubbles and starving the middle and bottom of society for capital, thereby shrinking the base of the economic pyramid smaller and smaller.

Could part of the answer (why employment lags official recovery) be explained by this? In the “old” recessions, American companies laid off American workers when the recession began; then those American companies hired American workers when the recovery began. In the “modern” recessions, American companies lay off American workers first when the recession begins and low wage Asian workers later and only for prolonged, deep recessions; then those American companies hire even more low wage Asian workers when the recovery begins. Only if it is a real boom time, do the American workers start getting there jobs back.

I hate to have to remind you of economic things so often, but your reliance on charting selected data leaves me no choice.

Let’s try it this way.

Reagan extended our Commercial Industrial Age with the Military Industrial Age. The Information Age took over in the 90s. That went Kaput, then we did the Financial Age (housing).

Each time we blow away an Economic Age, something new needs to replace it. We don’t just re-fill an existing output gap whenever demand comes back. This is all “at the margin”, of course, since we still have agriculture, even tho we don’t refer to it as an “Age”.

But this would explain the increasing time lags you see in your data.

What next is the question. So far it looks like the Government Spending Age, and we will see how long that lasts and then we go back to our roots and start again with the Agricultural Renaissance and sell pigs and chickens to Asia.